Form 10-K ☑ ANNUAL REPORT PURSUANT to SECTION 13 OR 15(D) of the SECURITIES EXCHANGE ACT of 1934
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-34927 Compass Diversified Holdings (Exact name of registrant as specified in its charter) Delaware 57-6218917 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) Commission File Number: 001-34926 Compass Group Diversified Holdings LLC (Exact name of registrant as specified in its charter) Delaware 20-3812051 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 301 Riverside Avenue, Second Floor Westport, CT 06880 (Address of principal executive office) (Zip Code) (203) 221-1703 (Registrants’ telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Trading Symbol(s) Name of Each Exchange on Which Registered Shares representing beneficial interests in Compass Diversified Holdings (“common shares”) CODI New York Stock Exchange Series A Preferred Shares representing beneficial interests in Compass Diversified Holdings CODI PR A New York Stock Exchange Series B Preferred Shares representing beneficial interests in Compass Diversified Holdings CODI PR B New York Stock Exchange Series C Preferred Shares representing beneficial interests in Compass Diversified Holdings CODI PR C New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrants are collectively a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨ Indicate by check mark if the registrants are collectively not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes þ No ¨ Indicate by check mark whether the registrants have submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrants were required to submit such files). Yes þ No ¨ Indicate by check mark whether the registrants are collectively a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer þ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrants have elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. þ Indicate by check mark whether the registrants are collectively a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No þ The aggregate market value of the outstanding common shares of trust stock held by non-affiliates of Compass Diversified Holdings at June 30, 2020 was $993,189,869 based on the closing price on the New York Stock Exchange on that date. For purposes of the foregoing calculation only, all directors and officers of the registrant have been deemed affiliates. There were 64,900,000 common shares of trust stock without par value outstanding at February 19, 2021. Documents Incorporated by Reference Certain information in the registrant’s definitive proxy statement to be filed with the Commission relating to the registrant’s 2021 Annual Meeting of Shareholders is incorporated by reference into Part III. Table of Contents Page PART I Item 1. Business 6 Item 1A. Risk Factors 63 Item 1B. Unresolved Staff Comments 75 Item 2. Properties 76 Item 3. Legal Proceedings 78 Item 4. Mine Safety Disclosures 78 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 79 Item 6. Selected Financial Data 80 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 82 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 127 Item 8. Financial Statements and Supplementary Data 128 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 129 Item 9A. Controls and Procedures 130 Item 9B. Other Information 130 PART III Item 10. Directors, Executive Officers and Corporate Governance 131 Item 11. Executive Compensation 131 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 131 Item 13. Certain Relationships and Related Transactions and Director Independence 131 Item 14. Principal Accountant Fees and Services 131 PART IV Item 15. Exhibits and Financial Statement Schedules 132 Item 16. Form 10-K Summary 132 NOTE TO READER In reading this Annual Report on Form 10-K, references to: • the “Trust” and “Holdings” refer to Compass Diversified Holdings; • the “Company” refer to Compass Group Diversified Holdings LLC; • “businesses”, “operating segments”, “subsidiaries” and “reporting units” all refer to, collectively, the businesses controlled by the Company; • the “Manager” refer to Compass Group Management LLC (“CGM”); • the “Trust Agreement” refer to the Second Amended and Restated Trust Agreement of the Trust dated as of December 6, 2016; • the "2014 Credit Facility" refer to the credit agreement, as amended, entered into on June 14, 2014 with a group of lenders led by Bank of America N.A. as administrative agent, as amended from time to time, which provides for a Revolving Credit Facility and a Term Loan; • the "2018 Credit Facility" refer to the amended and restated credit agreement entered into on April 18, 2018 among the Company, the Lenders from time to time party thereto (the "Lenders"), Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer (the "agent") and other agents party thereto. • the "2018 Revolving Credit Facility" refers to the $600 million in revolving loans, swing line loans and letters of credit provided by the 2018 Credit Facility that matures in 2023; • the "2018 Term Loan" refer to the $500 million term loan provided by the 2018 Credit Facility that matures in April 2025; • the “LLC Agreement” refer to the fifth amended and restated operating agreement of the Company dated as of December 6, 2016; • “we”, “us” and “our” refer to the Trust, the Company and the businesses together. Statement Regarding Forward-Looking Disclosure This Annual Report on Form 10-K, including the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” contains forward-looking statements. We may, in some cases, use words such as “project,” “predict,” “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,” “potentially,” or “may” or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements. Forward-looking statements in this Annual Report on Form 10-K are subject to a number of risks and uncertainties, some of which are beyond our control, including, among other things: • the adverse impact on the U.S. and global economy, including the markets in which we operate, of the novel coronavirus, which causes the Coronavirus disease 2019 (COVID-19) global pandemic, and the impact in the near, medium and long-term on our business, results of operations, financial position, liquidity or cash flows; • difficulties and delays in integrating, or business disruptions following, acquisitions or an inability to fully realize cost savings and other benefit related thereto; • our ability to successfully operate our businesses on a combined basis, and to effectively integrate and improve any future acquisitions; • our ability to remove our Manager and our Manager’s right to resign; • our trust and organizational structure, which may limit our ability to meet our dividend and distribution policy; • our ability to service and comply with the terms of our indebtedness; • our cash flow available for distribution and our ability to make distributions in the future to our shareholders; • our ability to pay the management fee, and profit allocation when due; • our ability to make and finance future acquisitions; • our ability to implement our acquisition and management strategies; • the regulatory environment in which our businesses operate; • trends in the industries in which our businesses operate; • changes in general economic or business conditions or economic or demographic trends in the United States and other countries in which we have a presence, including changes in interest rates and inflation; • risks associated with possible disruption in operations or the economy generally due to terrorism or natural disaster or social, civil or political unrest; • environmental risks affecting the business or operations of our businesses; • our and our Manager’s ability to retain or replace qualified employees of our businesses and our Manager; • costs and effects of legal and administrative proceedings, settlements, investigations and claims; and • extraordinary or force majeure events affecting the business or operations of our businesses.